MSME Business Loan Interest Rates

New Definition of MSME

The Reserve Bank of India and the Ministry of Finance revised the definition of MSMEs in May 202o. Formerly, the investment limit of a business was used as the key identifier and classifier. As of 202o, the annual sales turnover of a company is now also taken into account besides the investments made.

This revision was brought forth in light of the Atmanirbhar Bharat Abhiyaan of the Indian Government that aimed to make MSMEs across India self-sufficient. The revised definition of MSMEs is as follows:

• Micro Enterprises: Investments in plant and machinery not more than Rs. 1 crore and an annual turnover not more than Rs. 5 crore.
• Small Enterprises: Investments in equipment & establishments not more than Rs. 10 crores with turnover not more than Rs. 50 crore.
• Medium Enterprises: Investments not more than Rs. 50 crore and an annual turnover of not more than Rs. 250 crore

A business meets any of the above criteria and is eligible for MSME loan schemes. Under the new definition, no distinctions will be made between businesses in the manufacturing and services enterprises. The Government has also increased the maximum investment limit for borrowers, allowing more businesses to avail of MSME loans.

Collateral-free business loans for MSMEs come in various formats and offer low-interest rates, zero to nominal processing fees, flexible repayment tenures, convenient refinancing options, zero-collateral requirements, and the like. Moreover, micro, small and medium enterprises can avail of MSME loans online via the official websites of lending institutions or the Indian Government’s centralised digital marketplaces for business funding.

Top Banks’ MSME Loan Interest Rates in 2022

Here’s a look at some significant banks offering MSME business loans and their interest rates.

• Allahabad Bank: Interest rates are determined at the discretion of the bank;
• Oriental Bank of Commerce: Rate starts from 10.70% p.a. onwards;
• Andhra Bank: Determined at the bank’s discretion;
• Central Bank of India: The rate of interest start at 11.25 %;
• Indian Bank: Offers MSME loans at 9.75%;
• Punjab and Sind Bank: Attractive interest rate beginning at 9.95% p.a.;
• Punjab National Bank: MSME loan interest rate determined at the bank’s discretion;
• State Bank of India: Lowest interest rate starting at 7.65% per annum;
• Syndicate Bank: Decided at the bank’s discretion;
• UCO Bank: Interest rate starting at 8.85%;
• Union Bank of India: Loan interest rate determined at the discretion of the bank;
• United Bank of India: Interest rates range between 10.25% – 16.25% p.a.;
• HDFC Bank Interest Rate: Lie in the range of 10% to 22.5%;
• Axis Bank: The rate of interest lie in the range of 14.25 to 18.5%;
• IDFC First Bank: 14.5% onwards;
• Kotak Mahindra Bank: Interest rate lie between 16% to 19.99%;
• RBL Bank: Offers MSME loans at interest rates lying between 17.5% to 25% per annum;
• ICICI Bank: Rates at 17% onwards;
• Bank of Baroda: Rates are decided upon as per business profile and requirements; Rates start at 14%;
• Indian Overseas Bank: 11% onwards;
• IndusInd Bank: Rates begin from 13%

(Interest Rates As of October 11, 2022)

The minimum sanctioned loan amount can be as low as Rs. 50000, while the maximum amount can go up to a few crores.

Get MSME Loan at Low-interest Rates, if You have a Good Credit Score

Do you and your business have a good enough credit score? Are you and your business considered creditworthy by all of India’s primary credit rating agencies? You may meet the eligibility criteria for availing MSME loans at low-interest rates.

A credit score is an automated number generated by credit rating agencies that signify & summarize an entity’s creditworthiness or repayment history. Higher the credit score, the higher the chances of getting the desired loan amount at a favourable interest rate. A good credit score of at least 750 can help MSMEs avail of critical benefits, including flexible repayment tenures, micro finance refinance scheme, easy onboarding, convenient interest rates, lower or zero processing charges, quick approval, pre-approval, and other additional benefits.

To build a good credit score, firms and businesses that are availing of any loan facility for the first time need some credit facility. Building and maintaining a good score is essential to acquiring any debt financing with ease and in a convenient manner.

Know more about Credit Scores and their Importance in Availing of MSME Loan

Having a good credit score can make it simpler to avail of MSME business loans. A good score lies around 750 or above and indicates a good credit repayment history, timely EMI payments, and zero default. A high credit score can make it easy to sanction desirable loan amounts, availing reduced interest rates, longer repayment tenures, refinancing options, and quick approvals in the future.

Does MSME Loan come with or without Collateral/Security?

Both secured and unsecured business loans are available for MSMEs. Banks generally offer both collateral-free and secured loans, while most NBFCs offer MSME loans backed by specific collateral.

Collateral-free loans for MSMEs usually have an upper limit of Rs. 1 crore. They are short-term loans with a minimum tenure of around 1 year, which can be extended to up to 5 years. The Credit Guarantee Fund Scheme For Micro & Small Enterprises(CGFMSE) of the Government of India has also directed scheduled commercial public and private sector banks to offer MSME loans of up to Rs. 100 lakhs to a single borrowing unit without any collateral.